Want to make 80% of the population cringe and turn away? Start talking about budgets and net worth.
These concepts are different from other financial ideas, like investments, savings or even paying the bills.
We might not like paying the bills, but it doesn’t often send you running to the next room. We might not understand the ins and outs of investment portfolios, but that lack of knowledge doesn’t want to make you bury the folder in the backyard.
But BUDGETS and NET WORTH are words that have a different implication. They are negative. They mean you can’t spend your money.
Before I was married I was, what you might call, frugal.
But, to call a spade a spade – I was just tight.
TIGHT with a capital T.
I was single, making a good salary and spending the least amount I could each month. I didn’t buy new clothes, dressed warmly in the winter to avoid turning the heat higher than 63, and decorated my apartment in what my roommate and I affectionately called “Early American Basement.”
After a few years, and a growing nest egg, I splurged a little here and there but kept the reins tight on the finances. I was on a journey, and bound and determined to get there.
That all changed when I met my soon-to-be husband. We had different money blueprints (as T. Harv Eker calls it). And those differences resulted in several heated disagreements and recurring issues.
Over the years I let go of any hope for a bright retirement. From his perspective, he was saving for years during which he didn’t think he’d be alive. From my perspective, I had to have my own business so I could live during those “Golden Years.”
After the divorce there was no thought about saving or even budgeting. I just hoped that there would be a month when I didn’t have to charge the groceries to be able to pay the rent.
Years later, carrying more debt than I ever thought possible, I was finally making the bills each month WITHOUT dipping into the credit cards. Mind you, the bills had been electricity, gas, water, rent, food, credit card bills and insurance since the divorce.
There were no extravagances, but there was a roof over our heads and food on the table. The car was in good working order and we found ways to amuse ourselves that didn’t cost money.
It was time to create a budget again and get a handle on my net worth.
The first time my net worth was a resounding ZERO. I had as much in retirement savings from the divorce and assets, as I did in debt.
To push those numbers in the black, I created a Spending Program.
This is my version of the house budget. But, instead of looking at the program as a way of keeping us from spending money on the things we wanted, we saw it as a way of having both – a future vacation and some new clothes now.
And, of course, my retirement without depending on the kids to feed me.
Just about all of your challenges today can be boiled down to finances.
Not enough and there’s too much stress which triggers illness, disease and relationship problems.
Then there isn’t enough for the counselors to help with the relationship issues with your children. There isn’t enough for the stress reducing vacations, day off or yoga classes. There isn’t enough, so you pick up extra work to plug the hole in your finances.
Of course, not all challenges are caused by a lack of funds, but an unbelievable number can be fixed with more funds. Remember I did say “Just about all. . . .boil(ed) down to finances.” But NOT all.
In fact, your future, the future of your family and your health all depend upon your ability to pay. So your net worth and that pesky budget are VITAL, essential and down-right indispensable to your future.
It’s getting a handle on that budget that pushes most people away from the process. But the process is essentially very simple and easy to do.
- Change the way you think about money management from “budget” to Spending Program. You are defining the money you have to spend on what you want now, so you don’t go into debt, and still have money to spend tomorrow.
- Write down all the consistent bills you have each month – including the recurring insurance bills that only pop up every 3 to 6 months. Include just the essentials.
- Write down the things (and cost of those things) that you would like to be able to do each month. Include going out to lunch with friends, taking the kids to a special event and anything else that’s important to your family.
- Now write down how much money is coming in every month from every source – child support, spousal support, interest on accounts that isn’t reinvested, paychecks and any extra income you have.
- Tally up the amount from number 2 and 3; then subtract that number from the total in #4.
- If the number is less than zero you’ll have to cut from #3, if it’s greater than zero you should still cut from #3 (although maybe not AS much) and put the remainder away into a money market account (earns more interest than savings account and doesn’t require that you have investment knowledge). If you know something about investing, then invest the remaining amount each month, keeping enough in reserves to handle at least one month of bills in cash.
What bothers many people is tracking and writing down expenses each month. Not that it’s difficult or time consuming, but it’s just one more thing in a day filled with 300 things to do.
I don’t do that. It’s just one more thing in a day filled with 300 things – and then I feel guilty about not doing it!
Instead, I use one credit card for everything. I use it for my groceries, bill paying and anything else we’re doing. I pay it off at the end of every month and then have one place where I can see exactly how much money I’m spending each month and where it’s going.
Definitely not as accurate as keeping track of every place you spend cash, or happen to pull out a debit card – but much simpler than trying to have an accountant mindset, when that kind of work drives me up the wall.
Suddenly, you’ll have a Spending Program you can live with, that evolves over the months and years you use it. You’ll have a growing savings account and will be making more plans for retirement than living with the child who loves you the most.
Of course there is more to investing, separating savings and creating wealth in your life, but we’ll leave that for another day!